TikTok averts US ban following proposed deal with Oracle and WalmartSeptember 21, 2020
The ban has been lifted temporarily, but questions surround a deal that would see Oracle and Walmart buy a 20% stake in the new TikTok Global.
TikTok has skirted a government ban that would have curtailed new downloads of the app in the US. But its future remains murky.
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Following allegations that the Chinese-owned social media app collects personal data from users, which it can then share with China’s Communist government, President Donald Trump signed an executive order on Aug. 6, 2020 calling for a ban. Set to go into effect on Sunday, the ban would have prohibited any US app store from distributing or maintaining the TikTok app, code, or updates. Existing users who already had the app would still have access to it but wouldn’t be able to get updates, while new users would be unable to download it at all.
On Saturday, though, that ban was postponed following a prospective deal that promises to deliver part of TikTok to US companies Oracle and Walmart. Pointing to this deal as “recent positive developments,” Secretary of Commerce Wilbur Ross announced that the ban would be postponed from Sept. 20 until Sept. 27, giving TikTok at least another week of life on US app stores.
But the deal itself seems hazy. And TikTok’s ultimate status will depend on whether Trump feels the app will no longer pose what he considers a security threat, which itself will be based on how much control is based in the US.
In a tweet released on Saturday, TikTok claimed that both Oracle and Walmart would take part in a round of pre-IPO financing toward TikTok Global, a new entity located in the United States. Together, Oracle and Walmart would then be able to purchase up to a 20% collective stake in the new company. Oracle would become TikTok’s US technology provider, hosting all US data and computer systems to make sure that US national security requirements are satisfied. TikTok Global would also form some type of partnership with Walmart.
A statement released Saturday by Oracle echoed the information about buying up to a 20% stake in TikTok Global with Walmart, adding that TikTok Global would be responsible for providing all TikTok services to users in the US and most of the rest of the world. TikTok Global would be majority owned by American investors, including Oracle and Walmart, and function as an independent American company with four Americans out of the five on the board of directors.
Oracle’s statement also indicated that Trump has given TikTok owner ByteDance tentative approval for an agreement with the US government to resolve the outstanding issues.
A statement issued on Saturday by Walmart said that the retailer has tentatively agreed to purchase 7.5% of TikTok Global and provide e-commerce, fulfillment, payments, and other services to TikTok Global. The 7.5% stake would imply that Oracle would be buying a 12.5% stake in TikTok, assuming the two would carve out up to the full 20% indicated.
But here’s where the deal gets tricky. If Oracle and Walmart can buy only up to a 20% stake in the new TikTok Global, who would own the remaining 80% majority stake?
On Saturday, as reported by CNBC, Trump described TikTok Global by saying: “It’ll be a brand new company. It will have nothing to do with any outside land, any outside country, it will have nothing to do with China.” However, ByteDance, a Chinese multinational company headquartered in Beijing, said on Sunday that it plans to use the financing from the pre-IPO to buy an 80% stake in TikTok Global, which would still leave the majority ownership in China, at least on the surface.
The current ownership of ByteDance itself is spread among different parties. Almost 40% of ByteDance is presently owned by US venture capitalists such as Sequoia Capital and General Atlantic, according to a story published last week by the Wall Street Journal. Company founder Zhang Yiming owns 25%, while another 20% of the ownership is held by employees. Non-US investors own another 20%.
Technically, that would mean TikTok Global would be 60% owned in the US; 40% by the US VCs that have a stake in ByteDance, and 20% by Oracle and Walmart. But the perception would still be that ByteDance would have the majority stake, a prospect that doesn’t sit well with the president. Asked last week about ByteDance maintaining that stake, Trump said, “Conceptually, I can tell you, I don’t like that,” the Journal reported.